Ouch! Contractor’s Claim Rejected For Untimely Notice
Once again, a contractor has confronted the painful reality in Ohio that a failure to strictly follow the contractual notice of claims procedures, especially in a public contract, is perilous. In a recent case, despite delays on the project not caused by the contractor and despite breaches of the contract by the owner, the contractor’s failure to provide its notice of claim within 10 days of the occurrence of the event giving rise to the claim and its failure to substantiate and certify its claim within 30 days of that occurrence, per the express requirements of the contract, constituted a complete waiver of its claims. End of story. No compensation for the substantial acceleration of the contractor’s work due to a shortened construction schedule issued by the owner. And no compensation then afterwards for the owner substantially delaying the project. The clear lesson is that as difficult or undesirable as it is to give a formal notice of claim in the thick of a project, when the contractor is trying its best to work cooperatively with the owner and not exacerbate the problem, the contractor very likely waives its ability to assert a claim later if that contractor does not strictly follow the notice of claims procedures in its contract, particularly in a public contract in Ohio.
In this specific case, the owner unilaterally changed the schedule of construction, compressing the plaintiff/electrical contractor’s work schedule by about 28% from what had originally been scheduled. The contractor sent a number of letters to the owner starting about a month after the beginning of its work, describing generally the adverse impact this schedule change would have and that the contractor would no longer be able to do its work at the original price. It noted that, besides the schedule acceleration, air handling units also were delivered late to the project, causing a three or four week delay. It also noted that it suffered another four week delay due to the building not being watertight on time. Ultimately, then, very near the end of the project and months after the acceleration and delays had occurred, the contractor submitted the substantiation and certification of its claim. The problem was that the initial notice of claim was not within the required 10 days of the initial occurrence of an event giving rise to the claim and substantiation and certification did not come within the required 30 days. Per the contract, if these notice provisions were not followed, the claim was waived.
When the matter was litigated in the Court of Claims, the contractor made several arguments as to why the court should not enforce the waiver. First, it argued that it would be unfair. The owner had caused the problem and it would be a windfall to the owner not to hold it responsible for the harm it had caused. The court rejected this argument, noting that its job is not to re-write the parties’ contract to make it fair. Instead, it is to enforce the terms to which the parties agreed, clearly including waiver when the notice provisions are not followed.
Second, the contractor argued that it would have been impossible for the contractor to substantiate and certify its claim within 30 days. It could not know its damages until the project was complete because only then would it be known whether it was able to mitigate its damages or, conversely, whether its damages had increased as the project proceeded. The court also rejected this argument, stating that the notice provision did not require the impossible — it did not require a precise and final calculation of damages. Instead, it simply required the contractor to substantiate and certify its claim.
Third, the contractor argued that it would have been futile to substantiate and certify its claim since the owner had already made it clear that it believed the claim had been waived and would not entertain the claim. The court found that by statute the contractor was required to follow the contractual procedures, whether it believed its actions would be futile or not. Futility was not an excuse for not giving proper notice.
As a result, the court enforced the waiver and denied the contractor’s claim in its entirety. The contractor then appealed, and the appellate court has now affirmed the Court of Claim’s decision. We do not yet know whether the contractor will appeal the matter to the Ohio Supreme Court.
The lessons of this case are clear:
- To protect itself, especially in a public contracting matter in Ohio, a contractor must give notice of its claim within the specified time period of any event it believes will likely cause a delay or unanticipated costs on the job.
- A contractor must make a good faith effort to estimate the damages it will suffer as a result of the event and submit that estimation within the specified time period. The contractor should make reasonable assumptions as to what will happen and make reasonable estimates of the impact — even if it thinks it might not turn out that way. The contractor must put itself in a position that it can state to a court later, if necessary, that it made reasonable efforts under the circumstances to comply with the notice provisions.
- Despite the natural desire not to go to war with an owner every time something wrong occurs on the project and the natural desire instead to minimize its impact by addressing the problem cooperatively, a contractor must protect itself with proper notices or be willing to accept the consequence of losing its claim for additional compensation.
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